The Environment of
Financial Reporting
Intermediate Accounting 11th edition
Nikolai Bazley Jones
An electronic presentation
By Norman Sunderman
and Kenneth Buchanan
Angelo State University
COPYRIGHT 2010 South-Western/Cengage Learning
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Objectives
1. Understand capital markets and decision
making.
2. Know what is included in financial reporting.
3. Explain generally accepted accounting
principles (GAAP) and the sources of GAAP.
4. Identify the types of pronouncements issued
by the Financial Accounting Standards Board
(FASB).
5. Understand how the FASB operates.
Objectives
6. Describe the relationship between the
Securities and Exchange Commission (SEC)
and the FASB.
7. Use ethical models for decision making about
ethical dilemmas.
8. Understand creative and critical thinking.
9. Describe the joint convergence project of the
FASB and the IASB (Appendix).
10. Understand SEC reporting under U.S. GAAP
and IFRS (Appendix).
Capital Markets
Companies need large amounts of capital for
operations
Capital Markets
Companies may obtain capital by issuing
capital stock...
Stock Exchange
Capital Markets
or by borrowing from lenders
Bank
10
Capital Markets
11
12
13
Sources of Authority
Financial Accounting
Managerial Accounting
Internal needs
GAAP
14
Primarily historical
Managerial Accounting
15
Scope
Financial Accounting
Total company
Managerial Accounting
Individual departments,
divisions, and total company
16
Type of Information
Financial Accounting
Sal
es
Cos
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Exp s mar. 80,120
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Net nses 95,120
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Primarily quantitative
Managerial Accounting
Ma
usa teria
un ge is ls
by favor
$8 abl
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Qualitative as well as
quantitative
17
Statement Format
Financial Accounting
Managerial Accounting
Prescribed by GAAP;
oriented toward investment
and credit decisions
Determined by company;
focused upon specific
decisions being made
18
Decision Focus
Financial Accounting
Managerial Accounting
External
Internal
19
20
Financial Reporting
Financial reporting is the
process of communicating
financial accounting
information about a company
to external users.
21
Financial Reporting
Companies present at least three major financial
statements:
1. The balance sheet (or statement of financial
position), which summarizes a companys
financial position at a given date.
2. The income statement, which summarizes
the results of a companys income-producing
activities for a period of time.
3. The statement of cash flows, which
summarizes a companys cash inflows and
outflows for a period of time.
22
Financial Reporting
A statement of
changes in
stockholders equity is
also included by many
companies.
23
Financial Reporting
This statement
summarizes the changes
in each item of
stockholders equity for a
period.
24
25
26
Authoritative Sources
FASB Statements of Financial Accounting
Standards and Interpretations, FASB Statement
133 Implementation Issues, FASB Staff
Positions, and APB Opinions and CAP
(AICPA) Accounting Research Bulletins not
superceded by actions of the FASB (as well as
SEC releases such as Regulation S-X, Financial
Reporting Releases, and Staff Accounting
Bulletins for companies that file with the SEC)
Continued
27
Authoritative Sources
FASB Technical Bulletins, and, if
cleared by the FASB, AICPA
Industry Audit and Accounting
Guides, and AICPA Statements of
Position
FASB Emerging Issues Task
Force Consensus Positions, Topics
discussed in Appendix D of EITF
Abstracts, and, if cleared by the
FASB, AICPA Practice Bulletins
Continued
28
Authoritative Sources
FASB Qs and As (Implementation Guides),
AICPA Accounting Interpretations, AICPA
Industry and Audit Guides, and AICPA
Statements of Position not cleared by the FASB,
and practices that are widely recognized and
prevalent either generally or in the industry (e.
g., AICPA Accounting Trends and
Techniques)
29
30
31
32
33
34
35
36
Structure of FASB
37
38
39
40
41
42
43
44
45
46
Responsibilities
47
48
Integrity
49
50
Due Care
51
52
53
54
55
56
Chapter 1
Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.